This Stock Market Rally Has Everything To Do With The Turn Against Obama

Polls are polls. There is a lot of uncertainty in them. Additionally, if you don't know the parameters of how they drew their sample, or how they asked and scored their questions, the data can be misleading. But as a lot of people like to say, "Money talks and bul#$%@ walks!". Election years are traditionally very volatile years in the market. Markets don't like uncertainty. Since the populace is so polarized, it makes it even more volatile.

Over the past two years, America has seen an overbearing government propose and pass a very Western European style socialist agenda. Most people don't like it. Polls say so, but how do we really know?

The only place that pe ope can see the action is at Intrade.com. They have prediction markets. People put up real money. They assume a little risk and try and make a buck. It's similar to trading futures.

Today on October 7, 2010 Intrade's markets say that the Republicans have a 73.3% chance of taking control fo the House of Representatives, and a 40% chance to control the Senate. Data without perspective is uninteresting. Let's make it interesting.

Here's Intrade's odds on Republicans taking power in the House:

Here's Intrade's odds on the Democrats holding onto power in the Senate:

As soon as the market realized that the chance of a big Republican win might happen, it rallied.

This can be interpreted in many ways. One, gridlock is good. Two, the Republicans have laid down some principles and the market believes them. Three, the far left Obama agenda is dead. The results won't happen for some time and pundits can talk all they want. But, when you point to the scoreboard the results are clear. The market detests the Obama agenda and wants it defeated.

Interestingly, if we look back in time at the last election, there were similar results. As soon as Obama pulled ahead on the Intrade market, the stock market took a dump.

Check out the above chart right around September first. Soon after, McCain was in panic mode, suspending the campaign and looking silly. Obama remained the cool, calm, cucumber and was elected. Only Joe the Plumber almost derailed him. The low of the market was on March 5, 2009. Then the government started spending money to support it.

If the Republicans can control both the Senate and the House, will the market rally further? Past data point to a probability that they would. How much more is an open question. Even if they control both houses of Congress and repeal the all detrimental economic acts Obama has passed, Obama sits in the White House with the veto pen.

In two more years, we will have another election. If the Republicans pursue a free market, pro-growth, solid economic agenda and avoid divisive social issues in the next two years, it might not matter who runs against Obama. He could be a one termer and the vote could be ABBO, anybody but Obama.